FreshBrew, a company that produces premium coffee machines, is planning to open a new manufacturing facility. Management has narrowed the search to three potential communities. The expected demand for coffee machines is 10,000 units per year. They estimate the fixed costs per year and variable costs per unit for each location as follows:

Community

Fixed Costs ($/year)

Variable Costs ($/unit)

A

100,000

20

B

120,000

15

C

150,000

10

Based on the Break-Even Analysis, which community should FreshBrew choose for the new facility at what total annual cost?

Question

FreshBrew, a company that produces premium coffee machines, is planning to open a new manufacturing facility. Management has narrowed the search to three potential communities. The expected demand for coffee machines is 10,000 units per year. They estimate the fixed costs per year and variable costs per unit for each location as follows:

Community

Fixed Costs ($/year)

Variable Costs ($/unit)

A

100,000

20

B

120,000

15

C

150,000

10

Based on the Break-Even Analysis, which community should FreshBrew choose for the new facility at what total annual cost?

BlackTom AI · Accepted Answer

FreshBrew is evaluating three communities for a new manufacturing facility. The key numbers are:
- Demand (annual output): 10,000 units
- For each community, total annual cost = fixed costs per year + (variable cost per unit × annual quantity)

Option A: Fixed = 100,000; Variable = 20 per unit
- Total annual cost = 100,000 + (20 × 10,000) = 100,000 + 200,000 = 300,000
- This yields a total cost of 300k, which is higher than the other locations based on the given demand.

Option B: Fixed = 120,000; Variable = 15 per unit
- Total annual cost = 120,000 + (15 × 10,000) = 120,000 + 150,000 = 270,000
- This results in a total cost of 270k, lower than A but still above C.

Option C: Fixed = 150,000; Variable = 10 per unit
- Total annual cost = 150,000 + (10 × 10,000) = 150,000 + 100,000 = 250,000
- This gives the lowest total cost among the three options at 250k.

Now compare the options directly:
- A costs 300,000
- B costs 270,000
- C costs 250,000
Thus, the cost-minimizing choice under the given annual quantity is Community C, since it yields the smallest total annual cost.

Consider a potential pitfall: if one trusts only fixed costs, it might mislead toward the lowest fixed cost, but in break-even or cost-minimization analyses like this, the total cost function matters most for the specified quantity; here, the per-unit savings at C (10 vs 20 or 15) more than compensate for its higher fixed cost, producing the least total cost at 10,000 units.

If someone wonders about the effect of changing demand: as annual quantity increases or decreases, the difference in variable costs will impact the total cost differently, but with the current 10,000-unit assumption, C remains the lowest-cost option.

Finally, evaluating the provided answer options:
- 'Community C — Total Cost = $250,000' is the statement that aligns with the calculation above.
- 'Based on the Break-Even Analysis, which community should FreshBrew choose for the new facility at what total annual cost?' is a restatement of the problem rather than a computed cost.
- 'Community B — Total Cost = $270,000' presents the cost for B, which is higher than C.
- 'Community B — Total Cost = $230,000' presents an incorrect cost for B, miscomputing either fixed or variable contributions.

类似问题

Question textA business sells a product for $250. Variable costs are $100 per unit and total fixed cost are $120,000. How many products business need to sell to break-even? Answer 1 Question 3[input] products

Profit alone Blank ______ how many units should be sold before a firm breaks even.

What term describes the point at which the number of units sold generates enough revenue to equal total costs?

At the break-even point, profits on the sale of a product are Blank ______.

How do managers use break-even analysis?

You decide to start selling hypercars. You figure it will take $100,000,000 to start a factory. You plan to sell your cars for $2,000,000 each. Each car will cost about $1,000,000 to make. Your break-even point is:

TB MC Qu. 09-28 An example of goal-seek analysis... An example of goal-seek analysis is determining

更多留学生实用工具

智能学习助手

风格化写作助手

论文查重助手

文献引用助手

课堂转译助手

课堂笔记助手

Quiz搜索助手

学校历年真题

智能刷题助手

智能匹配练习

希望你的学习变得更简单